Tuesday, 5 September 2017

5 Tips To Survive A Bear Market

The world’s most important equity indexes started this week in red territory. From stocks to commodities or currencies, all were affected somehow by the rising geopolitical tension in the Korean peninsula as Pyongyang tested its sixth nuclear weapon over the weekend.

“His abusive use of missiles and his nuclear threats shows that he is begging for war,’’ said US Ambassador Nikki Haley at an emergency meeting of the UN Security Council.

“The United States will look at every country that does business with North Korea as a country that is giving aid to their reckless and dangerous nuclear intentions,’’ she added.

And while there are other countries, such as Russia and China, that believe dialogue is the only suitable way to resolve the situation in the region, the risks are getting too high. Meaning what exactly? Let’s just say markets could turn to the downside for an extended period of time, as investors all around the globe transfer their capital from risky assets to safe havens.

And just like that… hello bear market. So the question is not “will it happen?” but rather “what should I do if it does?” And here is a brief 5 tips to ensure your portfolio does not suffer much.

1 - Emotions aside

When you see your stocks or currency pairs go to the opposite direction of your trade, you feel your life is basically over. But it is not. On the contrary, if you are effectively managing risks in your portfolio (remember the 1 percent rule?), you can afford some losses and still have enough to win other battles and eventually, the war. Pay attention to market reaction in times of stress.

2 - Buy low, sell high

Like it or not, it’s a natural process for economies. Some years are good, some are not. The latest ones could be seen as an opportunity to enter long-term positions at competitive levels with the expectation that eventually assets will recover in the long run.

3 - Bears are stronger, don’t fight them

In order words, take some time off and stop thinking you can beat the trend. You can’t. You either ride it in the right direction or find yourself a place to lay down for a while.

4 - Turn your eyes to what really matters

When people experience economic crisis, they tend to reduce consumption and begin sort of a survival protocol. It’s just that moment when you should identify which products and services become essential, and which are easily discarded by consumers.

5 - Diversify

A well-diversified portfolio will go down probably, but it will certainly not be dead in the first round. Adding a bit of gold to your arcs won’t hurt you, as well as some other low-risk assets such as government bonds. They perform well in periods of uncertainty. Check them out!